N.J. accuses Allendale-based Energex and CEO of fraud

By HUGH R. MORLEY

Staff Writer |

The Record

The CEO of an Allendale-based medical technology company defrauded nearly 800 investors by selling $9.5 million in unregistered stocks and using the funds for jewelry, political donations, landscaping for his home and trips to Atlantic City and Italy, New Jersey authorities allege.

A lawsuit filed in Superior Court in Hackensack by the New Jersey Bureau of Securities accuses Energex Systems, Inc. and CEO Thomas J. Fagan of violating the state's Uniform Securities Law by spending more than $2.1 million in investor funds on himself and his wife.

Fagan denies the claims, and says he looks forward to a court decision on the case.

The privately held medical technology company, which was incorporated in 1999 under the name Orthomedics, Inc., says it develops and commercializes technologies for musculoskeletal pain, organ failure, oncology and blood safety and immunotherapy.

The suit alleges that since 2000, Fagan, 56, of Emerson, sold unregistered Energex stock when he wasn't registered as an agent with the bureau of securities, which is part of the state Division of Consumer Affairs.

Fagan then "commingled" the funds with accounts held by several companies he controlled and spent some on himself and his wife, Candace, the suit says. A state licensed clinical, alcohol and drug counselor, Candace Fagan had offices in Fort Lee and at Energex's Allendale office, but paid no rent, the suit claims.

Candace Fagan is also a defendant in the suit, which accuses her of using a company credit card for meals, gasoline and other expenses. The suit also claims that the Fagans' daughter, Cara, an Energex employee, misused a company credit card, although she is not a name defendant.

Fagan, reached at his company office, called the allegations an "unbelievable story."

"There is no question that we have 800 shareholders and that we have raised approximately $10 million," he said, adding that his attorneys have offered to repay the money three times, but the attorney general has never accepted that offer.

"I have offered to return every dime that's been invested, plus interest," said Fagan who is the company's chairman and president, as well as CEO. "I'm not sure who is harmed here."

The suit accuses Thomas Fagan of making false or misleading statements in the sale of securities, fraud, and selling unregistered securities. He and his wife are charged with unjust enrichment, and Candace Fagan is also charged with fraud.

Two other companies allegedly controlled by Thomas Fagan and with the same address as Energex - Arbios Acquisition Partners, LLC and Arbios Systems, Inc. - are also named as defendants in the case.

The suit seeks to stop all of the defendants from violating state securities laws and to freeze all of their assets, as well as repay $2.3 million.

The suit says that, beginning in 2000, Thomas Fagan and Energex sold company stock to 784 investors in 26 states, including 228 investors in New Jersey.

But aside from receiving a one-time payment for a "hemo-modulator device," which seeks to use ultra-violet light to treat patients with blood-borne diseases, the company had almost no revenue except the investor funds, the suit says.

When selling the securities, Fagan failed to give investors key information about the company, such as its "insolvency" and the fact that he wasn't registered to sell securities and the stock was not registered, the suit says.

He also didn't tell them about the extensive use of company funds for personal expenses, including "tens of thousands of dollars for political and charitable" contributions that were unreimbursed, the suit says.

Fagan made more than 60 campaign contributions to federal candidates, mainly Republicans, between 2003 and 2008, totaling about $200,000, according to the OpenSecrets.org. They included $4,600 to Arizona Sen. John McCain when he was running for president in 2008, $2,000 to President Bush in 2004, $7,000 to Rep. Scott Garrett, R-Newton, and more than $73,000 to the National Republican Congressional Committee between 2003 and 2008.

In four of the donations, he listed his occupation as "Garrett for Congress/Finance Chairm" according to OpenSecrets.org.

Garrett's office did not respond to a request for comment.

Fagan said he looks forward to the court's "guidance and decisions" on the case and added: "our shareholders, my wife and I are proud of our accomplishments in building these remarkable companies whose technologies have already begun to change the way chronic and life threatening diseases are treated."

N.J. accuses Allendale-based Energex and CEO of fraud

The CEO of an Allendale-based medical technology company defrauded nearly 800 investors by selling $9.5 million in unregistered stocks and using the funds for jewelry, political donations, landscaping for his home and trips to Atlantic City and Italy, New Jersey authorities allege.

A lawsuit filed in Superior Court in Hackensack by the New Jersey Bureau of Securities accuses Energex Systems, Inc. and CEO Thomas J. Fagan of violating the state's Uniform Securities Law by spending more than $2.1 million in investor funds on himself and his wife.

Fagan denies the claims, and says he looks forward to a court decision on the case.

The privately held medical technology company, which was incorporated in 1999 under the name Orthomedics, Inc., says it develops and commercializes technologies for musculoskeletal pain, organ failure, oncology and blood safety and immunotherapy.

The suit alleges that since 2000, Fagan, 56, of Emerson, sold unregistered Energex stock when he wasn't registered as an agent with the bureau of securities, which is part of the state Division of Consumer Affairs.

Fagan then "commingled" the funds with accounts held by several companies he controlled and spent some on himself and his wife, Candace, the suit says. A state licensed clinical, alcohol and drug counselor, Candace Fagan had offices in Fort Lee and at Energex's Allendale office, but paid no rent, the suit claims.

Candace Fagan is also a defendant in the suit, which accuses her of using a company credit card for meals, gasoline and other expenses. The suit also claims that the Fagans' daughter, Cara, an Energex employee, misused a company credit card, although she is not a name defendant.

Fagan, reached at his company office, called the allegations an "unbelievable story."

"There is no question that we have 800 shareholders and that we have raised approximately $10 million," he said, adding that his attorneys have offered to repay the money three times, but the attorney general has never accepted that offer.

"I have offered to return every dime that's been invested, plus interest," said Fagan who is the company's chairman and president, as well as CEO. "I'm not sure who is harmed here."

The suit accuses Thomas Fagan of making false or misleading statements in the sale of securities, fraud, and selling unregistered securities. He and his wife are charged with unjust enrichment, and Candace Fagan is also charged with fraud.

Two other companies allegedly controlled by Thomas Fagan and with the same address as Energex - Arbios Acquisition Partners, LLC and Arbios Systems, Inc. - are also named as defendants in the case.

The suit seeks to stop all of the defendants from violating state securities laws and to freeze all of their assets, as well as repay $2.3 million.

The suit says that, beginning in 2000, Thomas Fagan and Energex sold company stock to 784 investors in 26 states, including 228 investors in New Jersey.

But aside from receiving a one-time payment for a "hemo-modulator device," which seeks to use ultra-violet light to treat patients with blood-borne diseases, the company had almost no revenue except the investor funds, the suit says.

When selling the securities, Fagan failed to give investors key information about the company, such as its "insolvency" and the fact that he wasn't registered to sell securities and the stock was not registered, the suit says.

He also didn't tell them about the extensive use of company funds for personal expenses, including "tens of thousands of dollars for political and charitable" contributions that were unreimbursed, the suit says.

Fagan made more than 60 campaign contributions to federal candidates, mainly Republicans, between 2003 and 2008, totaling about $200,000, according to the OpenSecrets.org. They included $4,600 to Arizona Sen. John McCain when he was running for president in 2008, $2,000 to President Bush in 2004, $7,000 to Rep. Scott Garrett, R-Newton, and more than $73,000 to the National Republican Congressional Committee between 2003 and 2008.

In four of the donations, he listed his occupation as "Garrett for Congress/Finance Chairm" according to OpenSecrets.org.